Bustling Chinese auto market spurs Volkswagen’s expansion initiatives

Further expanding its Chinese operations, Volkswagen’s joint venture with Shanghai Automotive Industry Corp. (SAIC) is set to begin building a $314.4 million assembly plant in the western region of Xinjiang.

With completion scheduled for 2013, the facility in the capital city of Urumqi is expected to annually produce 50,000 small sedans for distribution in China and eight neighboring nations. The location is significant, according to multiple Asian media accounts, because Xinjiang is home to the minority Muslim Uighurs population that expresses consistent opposition to China’s centralized political power structure.

Zhang Chunxian, Xinjiang’s senior government official, has reportedly told VW Chairman Martin Winterkorn that automotive demands are heightening at a rapid pace because of ongoing infrastructural improvements and a burgeoning network of connections with adjacent provinces and other Central Asian countries, allowing the carmaker to “gain a strategic advantage” by moving ahead with the project.

Additional details were being kept confidential by the principals pending a formal announcement of the plans that was expected in late April (just after press time) when Chinese Premier Wen Jiabao visits Germany.

Volkswagen, however, has a long history of doing business with various Chinese regimes since it became the first foreign automaker to enter China some 30 years ago through a series of joint ventures. It currently has 16 production, sales and financial services units operating in China, including its First Automobile Works (FAW) joint venture arrangement.

VW set a set a new sales record of 633,000 vehicles during the first quarter of this year, and the company has declared its intent to invest about $18.4 billion through 2016.

The FAW-Volkswagen alliance was established in 1991, and last summer some 4,500 guests celebrated the joint venture’s 20th anniversary at a ceremony in Changchun. FAW-Volkswagen is currently one of China’s largest OEMs, having sold more than five million vehicles since operations began. It produces several VW and Audi models, plus parts and components, at plants in Changchun, Chengdu and Dalian.

“Together with our partner FAW we have played a decisive role in shaping mobility in China and created more than 15,000 jobs,” Winterkorn said at the gala. “Alongside our strong partners we are aiming to grow further in our second home of China and to create new jobs.”

Scheduled to be open for business in June, Lentuo International, Inc., the largest non-state-owned automobile retailer in Beijing, will become the largest FAW-Volkswagen dealership.

In addition to repairs and maintenance, it will offer aftermarket parts and add-on services such as vehicle financing and insurance, leasing and used-car sales.

“FAW-Volkswagen’s flagship location will be the brand’s fourth dealership in our network of top-performing stores,” reports Hetong Guo, Lentuo’s founder and chairman.

“We are very pleased to have this opportunity to continue our track record of success and strengthen our relationship with this venerable manufacturer,” he observes, noting that the company’s TongDa FAW-Volkswagen branch in another area of Beijing, which opened in June of 2011, sells an average of 200 vehicle sales per month.

“The strong sales performance of this location since its opening confirms that our management team made the right decision in placing a dealership at this strategic site,” says Guo.

Citing the opportunity to supply the FAW-Volkswagen manufacturing base in Chengdu along with other automakers in southwest China, in April Visteon Corp.’s FAWER Visteon Climate Control Systems (FVCC) joint venture opened a new plant to produce OEM aluminum radiators.

“This marks Visteon’s first climate manufacturing facility in Chengdu,” says Joy Greenway, a Visteon group president. “This strategic location reinforces our ability to support domestic and global automakers in China, the largest automotive market,” she explains.

The 39,800-square-foot plant is expected to have an annual production capacity of 500,000 units by 2013.

“The establishment of FVCC Chengdu represents yet another strong testament to the strategic and successful partnership between Visteon and FAWER,” says Ye Fan, FAWER’s president.

In August of 2011, VW and FAW opened an engine reprocessing plant in Dalian that allows Chinese drivers to buy Volkswagen parts that are up to 50 percent less expensive, according to Dr. Karl-Thomas Neumann, president and CEO of Volkswagen Group China. It has the capacity to refurbish 15,000 engines per year.